Background and Introduction
1. This judgment determines a dispute arising from loan facilities advanced by the defendant (DTB), to Tusker Mattresses Ltd. The plaintiffs are the registered proprietors of House Number 9, Magnolia Hills erected on LR No. 2951/201 (the suit property) which they charged to the Bank as security for Tusker Mattresses indebtedness.
2. By a letter of offer dated 19th October 2017, DTB granted Tusker Mattresses a three-year term loan facility of Kshs. 260,000,000/=. The loan was to be secured, inter alia, by a legal charge over the plaintiffs’ property.
3. The plaintiffs contend that between 1st November 2017 and 23rd June 2020, Tusker Mattresses made daily remittances of Kshs 250,000/= towards the liquidation of the loan, with the last remittance being made on the 23rd June 2020. As far as the plaintiffs are concerned, this settled the entire loan. They contend that for almost two years thereafter there was no communication at all from DTB until 23rd May 2022 when they were served with a three-month statutory notice dated the 9th May 2022 demanding immediate payment of Kshs 2,562,461,949.35 towards the facility.
4. Additionally, the plaintiffs aver that DTB failed to furnish them with timely loan account statements and that DTB has violated the in duplum rule under Section 44A of the Banking Act by allowing interest to exceed permissible limits. Aggrieved by these actions, the plaintiffs filed this suit on 3rd October 2024 seeking to nullify the statutory notices dated 9th May 2022 and 19th August 2022, a declaration that the plaintiffs indebtness to DTB had been fully discharged, an order for immediate discharge of the suit property and an injunction against DTB from interfering with the said suit property.
5. DTB filed a statement of defense dated 8th February 2024, acknowledging the facts on the facility as pleaded by the plaintiffs but maintaining that in addition to the term loan referred to by the plaintiffs, DTB had advanced to previous facilities to Tusker Mattresses. DTB’s position is that the charge instrument signed by the plaintiffs was a continuing security instrument which expressly permits the Bank to consolidate multiple loan accounts and tack further advances (including prior and subsequent facilities) onto the security of the suit property.
6. As such, the facilities in these offer letters as well as the term loan extended through the offer letter of 19th October 2017 were all secured by amongst others, the suit property. DTB therefore submits that the plaintiffs cannot be discharged from the charge until all secured obligations, including Tusker Mattresses earlier loan facilities that have been consolidated are fully paid.
7. DTB confirms that Tusker Mattresses began servicing the term loan in November 2017 but defaulted in its repayments of the now consolidated accounts. As at 9th May 2022 the amount due and outstanding stood at Kshs. 2,562,461,949.35 against an aggregate facility total of Kshs. 2,460,000,000/= advanced to Tusker Mattresses.
8. On the statutory notices, DTB asserts that it has complied with the requirements under the Land Act by properly serving all requisite notices upon the plaintiffs and Tusker Mattresses, and that the notices adequately stated the nature of default and amounts due. The Bank denies breaching the in duplum rule, contending that any interest accrued is within lawful bounds.
9. At the hearing of the case, each party called one witness. Since the testimonies by the witnesses mirror the facts that I have already summarized, I will not regurgitate their testimonies but will refer to them in the course of my analysis as necessary.
10. Parties also filed their respective written submissions which I have carefully considered alongside the pleadings and evidence. In my view, the issues that arise for determination are whether DTB reserved the right to tack and consolidate Tusker Mattresses accounts, whether the plaintiffs right of redemption has accrued and whether DTB is entitled to realize the security.
Analysis and determination
11. At the heart of this dispute is DTBs attempt to hold the suit property as security not only for the loan expressly referenced in the 2018 charge, but also for other loan facilities advanced to Tusker Mattresses at different times. Section 82(1) of the Land Act 2012 is particularly relevant. It provides that:
“Subject to the provisions of this Act, a chargor may make provision in the charge instrument to give further advances or credit to the chargor on a current or continuing account.”
12. In other words, the law permits parties to agree in the charge document itself that the charge shall stand as security not just for one fixed sum, but also for further or future advances made to the borrower on a running account. However, the Act imposes certain conditions and limitations on such arrangements. Section 82(2) stipulates that any further advance made under such a provision will not enjoy priority over a subsequent charge unless the provision for further advances is noted in the register.
13. Most significantly, Section 82(3) pointedly states:
“Except as provided for in this section, there is no right to tack.”
14. This means that a lender cannot unilaterally tack on additional loans to an existing security unless the charge instrument and the conditions of Section 82 are complied with. Section 84 of the Act (as read with Section 82) reinforces that if the parties intend a charge to secure further loans beyond the initial sum, this must be reflected in the charge and registered appropriately.
15. The charge dated 30th March 2018 has been availed to this court and I note that it is executed by the plaintiffs. I concur with the submissions by DTB that it contains provisions typical of a continuing security charge. Several clauses support this finding.
16. Clause B in the recitals section provides amongst others that the suit property as security would be used to grant the borrower other financial accommodation from time to time meaning that it was not just for the term loan of Kshs. 260,000,000/=. Clause 5b of the charge equally provides that the security is to be provided as a continuing security for ‘liabilities present and future’.
17. Clause 17 and 19 relate to the right to tack and consolidate the facilities. Clause 17 reads in part that ‘it is hereby acknowledged by the chargor and the borrower that there shall be no restriction on the right of the chargee of consolidating mortgage facilities and the chargee hereby reserves the right to consolidate all mortgages and charges which the charge may from time to time hold…’. Clause 19 then reads ‘The chargees right of tacking … and consolidation…shall be noted on the register. I have no doubt that these clauses contractually reserve DTBs right to consolidation of accounts and security.
18. By the plain language of the above clauses, which the plaintiffs agreed to, the suit property was intended to secure not only the term loan facility in the March 2018 charge but also any other financial facilities, existing and subsequently extended to Tusker Mattresses on a continuing account, subject to any limits.
19. This dispute mirrors the scenario in John Karanja Kihagi & Anor V Jamii Bora Bank Ltd & Others, [2020] eKLR, where a chargor’s land initially secured a loan of Kshs 2.3 million but the charge instrument contained a virtually identical Clause allowing further advances. The High Court upheld the enforceability of that clause, noting that the chargor had expressly consented to the Bank advancing additional facilities on the strength of the existing charge.
20. In that case, when the chargor argued that paying off the initial Kshs 2.3 million loan extinguished the charge, the court rejected the argument, holding that there was “no covenant that the charge would be discharged upon payment of the initial sum”, given the charge’s continuing security nature.
21. The plaintiffs argue that notwithstanding the charge language, DTB should not be permitted to saddle their property with loans that were not specifically contemplated or reflected against the title at the time of charging. They emphasize that the official search on the title shows only the 2018 charge and makes no mention of any other charges or further advances. They also contend that if DTB wanted to secure Tusker Mattress’s prior existing facilities or any future loans, it ought to have registered the charge as required under Section 83(2) of the Land Act.
22. Upon careful consideration, the Court finds that DTB’s right to consolidate and tack multiple facilities under the plaintiffs’ charge is enforceable. The charge instrument unmistakably provides for a continuing security covering existing and future and by extension, any outstanding advances to Tusker Mattresses for which the plaintiffs are sureties. This falls squarely within the allowance of Section 82(1) of the Land Act. The plaintiffs knowingly agreed to this arrangement when they signed the charge. There is no evidence of fraud, misrepresentation, or mistake in the execution of the charge; thus, the plaintiffs are bound by its terms.
23. The lack of a separate encumbrance entry for each subsequent loan in the land register does not negate the charge’s efficacy in covering those loans especially since there is no subsequent chargee other than DTB.
24. It is also noteworthy that when DTB extended the subsequent facilities to Tusker Mattresses the plaintiffs were aware. In fact, they have themselves produced the letters dated 19th October 2017, 13th February 2019 and 19th May 2020, all of which refer to the suit property as part of the securities for various existing facilities extended by DTB to Tusker Mattresses. I therefore conclude that the March 2018 charge was intended to secure Tusker Mattress’s obligations on a continuing basis, and DTB is within its contractual rights to consolidate and tack the multiple loan facilities under that security.
25. The plaintiffs’ other issue is that their right of redemption has arisen in this case because, by their calculation, the specific debt they agreed to secure has been paid or is legally deemed paid in light of the in duplum rule. They argue that therefore nothing remains lawfully owing that would justify the DTBs refusal to discharge the charge. In a normal charge, the right to redeem matures once the loan is repaid or tendered in full.
26. In this case, as established above, the secured obligations include Tusker Mattress’s consolidated debt which, on the evidence, has not been fully repaid. It is not disputed that Tusker Mattress fell into arrears and that as of the date of the statutory notice, a substantial sum was outstanding. The plaintiffs do not claim to have repaid that outstanding amount; rather, they contend that the amount recoverable is effectively zero or has been offset.
27. Given the finding that the charge secures all the consolidated facilities, it follows that the plaintiffs’ right to redeem the charge free and clear will arise only when all monies due under those facilities have been paid. In John Karanja Kihagi & another V Jamii Bora Bank & 2 Others, [2020] KEHC 1797 (KLR) the chargor argued he was entitled to a discharge after repaying the initial loan. The Court disagreed with this submission, explaining that the charge, being a continuing security, remained in force until all obligations were paid.
28. The evidence does not show that the plaintiffs or Tusker Mattresses have paid the total consolidated debt. In short, the plaintiffs have not demonstrated that their equity of redemption has been unfairly clogged beyond the agreed terms of the charge. The charge itself permits DTB to withhold discharge until all secured sums are paid; exercising that contractual right is not a clog, but the very nature of a continuing security. In light of the foregoing, the Court finds that the plaintiffs’ right of redemption has not yet accrued because the secured debt remains unpaid.
29. Furthermore, from a review of the record, the Court finds that DTB complied with the procedural requirements of Sections 90 and 96 of the Land Act prior to moving to realize the security. The notices cannot be nullified as they were valid. The Bank’s statutory power of sale had crystallized by the time this suit was filed. The plaintiffs have not presented any evidence to prove that DTB breached the in duplum rule. In any case, the in duplum rule does not discharge the plaintiffs’ indebtedness entirely; it only ensures that the interest component of the debt is limited. The plaintiffs are still liable to pay the principal and interest up to the statutory maximum.
30. Finally, with regard to the statements of account, Section 97 of the Land Act places a duty upon the chargee to furnish the chargor with information necessary for the protection of the chargor’s interest in the charged land. This includes providing details of the outstanding amount. I concur that a chargor is entitled to request an account from the chargee.
31. In the present case, the plaintiffs have annexed statements of account relating to the term loan, which suggests that they may already be in possession of additional statements. In my view, the absence of a statement of account does not, in itself, render a statutory notice invalid where the default is otherwise established. The appropriate remedy in such circumstances is to direct the bank to furnish a full account.
32. The Court finds that the failure to provide statements (if at all), does not discharge the plaintiffs from the debt, nor does it invalidate the charge or the default. In light of the foregoing analysis and findings, the plaintiffs have not succeeded in proving grounds that would warrant granting the orders sought in their plaint.
Disposition
33. Accordingly, the suit filed vide the plaint dated 3rd October 2024 is dismissed with costs to the defendant.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 22ND DAY OF APRIL 2025.
F. MUGAMBI
JUDGE